IMF issued a working paper with advice for Japan

Japan should set a wage inflation goal of around 3 percent to try to end low wage growth and induce prices to rise in line with the central bank's inflation target, Reuters reported Monday citing the working paper from International Monetary Fund (IMF).

The Bank of Japan is also called to adopt an inflation-forecast-targeting framework, in which monetary policy responds to deviations of the inflation forecast from the 2 percent target.

The working paper, which not necessarily represents IMF’s official views, contains the recommendations made by several authors as part of their proposed policy package to reinforce the "Abenomics".

The working paper suggested that the "new arrow" of a proposed policy package be "an incomes policy for Japan to put an end to low wage growth and induce inflation" through cost-push pressures.

As a part of new incomes policy, the government would announce a wage inflation guideline, which companies would then need to comply with, or explain publicly why they cannot, it added.

It also noted that the BOJ forecast of inflation would become an ideal intermediate target for monetary policy, helping the central bank build up credibility with financial markets and better anchor long-term inflation expectations to its 2 percent target.

"Monetary policy would need to continue to be managed flexibly with all easing options remaining on the table to respond to demand conditions in the economy," the working paper said..

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